Yesterday we reviewed the pros and cons of having a will. Now let’s move on to the trust which is sometimes referred to as the living or family trust.
You can create a living trust by simple executing a few documents. Once you do that the trust becomes a legal entity that you can transfer your assets into while you are living. Some trusts allow assets to be moved into it even after you pass away.
You are the grantor (the person who transfers assets into the trust) and usually the trustee as well.
When you set the trust up, you specify what happens to your assets if you become incapacitated or if you die. Like a Will you can change the terms of the trust anytime you like.
Advantages of a Living Trust
- A will has to be probated but a trust doesn’t. Your successor trustee doesn’t have to go to court to divvy up the goods. All she has to do is adhere to the terms of the trust and carry them out. So when it comes to executing your final wishes, a trust gets the job done faster and if far more cost effective than a will.
- A trust provides complete privacy. Nobody knows the terms of your trust other than the people you tell. And after your assets are distributed the “cone of silence” stays in place.
- Since you are the trustee of the trust you control what happens to your money.
- In case you do become incapacitated the trust usually appoints someone else to act on your behalf. And remember, you set up the trust in the first place so you control who that person is going to be.
- In most cases, the trust can be used to manage assets that are outside the state you live in.
Disadvantages of a Living
A trust only works if you re-title your assets into it. If you fail to actually rename your property it will be as if the trust doesn’t exist.
The trust doesn’t address the issue of what happens to your minor children.
- Other personal matters such as funeral arrangements can easily be overlooked using a trust.
- Creditors can still come after your assets after they are distributed by the trust. With a Will, you don’t have that problem.
- The trust doesn’t supersede other claims. If you hold property jointly and/or in community property or if you name a beneficiary for a specific asset (such as with TODs and retirement accounts) the trust won’t control those assets.
- Trusts are more expensive to establish than wills. They also take more time to set up. And after the trust is created, you still have to spend time reregistering your accounts and property to make sure they are inside of it.
- Since the court has no oversight, you have less protection against funny business with a trust.
So there you have it. Yesterday we examined the pros and cons of Wills and today we looked at trusts. But which is a better choice for you? We’ll explore that tomorrow.